The Evolving Airport-Airline Relationship: What Do Airports And LCCs Need From Each Other?

Transcript

Laurens Van Den Oever:It's a great pleasure being here. It's a great pleasure as well rounding off the day together with you. I'm sure that we're putting a lot of pressure on your shoulders as well to stay with us at this very end of the day, and we will also try to bring something new. Because really, when we were looking through kind of the preparation of this last final panel, we realized that a lot of the topics actually were already covered. So we needed to reinvent what is going to happen here, and I could use your assistance on that as well. There's a couple of particular topics we really would like to dive into that's more related about the data issues. So what is the kind of data that airports, airlines, need to use together, how they make and fund their decisions, as well on the utilization of technology. We would also like to highlight a little bit further on the cost side, both on the incentive side but as well as, you know, the cost associated. And to round up, we will have hopefully really some, some, some new insights coming from a top-notch expert panel that I will be— I would love to bring them on stage right now before we look into some of the data facts behind this panel now. Ignacio, may I please welcome you to join as well? Doesn't need a further introduction after your presentation just here. I would like to announce Bert van der Stege from Halifax Well, we're moving on with Stephen King from Gatwick, as well Chris from Dohop, and I'm missing obviously Javier, easyJet. You've seen him as well today, but we're going to catch up on a, on a couple of other things on that. May I please ask the technicians to see if the one slider on basically the capacity situation can be brought up. Basically, as a short preparation on that, as well for the panelists, together with CAPA, we have made an analysis to see, okay, so what's the status quo? What is the current situation on capacity by region? And basically, who is responsible for the majority of long-haul low cost. And as you can clearly see, look at North America to worldwide, which is really dominated 90% by basically 4 airlines, as well 58% done by 4 destinations. If we look further and you look specifically Europe to North America, South America, Asia, the picture doesn't really look different. And highlighting Asia to Asia, obviously in the short range, the 3 airlines dominating it by 82% and 4 countries on 65%. Now, last but not least, Asia to North America, 4 airlines as well, 94%. Basically what we're seeing here, and that's what I would like to ask the panel, is to say, well, what do you see reflected in these numbers? And basically, is this really the tipping point of a market that is about to explode, or is it a market that will remain with the numbers that we see here? Maybe, Ignacio, can I first ask you to just give us your view on what you basically interpret based on the current capacity status?

Ignacio Biosca:Well, you know, it's very difficult to say how things will evolve. We have We have listened to very interesting interventions this morning, and there are many different points of view. So I wouldn't dare in, you know, saying things will evolve in one way or another. I would say that things are changing very, very fast. That is true. And we need to be ready for whatever It comes, and as airports, we'll have to be flexible enough to recognize and to enhance and to be able to facilitate the new business models that are appearing. I think that's our role here.

Laurens Van Den Oever:Okay, good point. But Javier, if I ask you one quick comment on the current status quo as well, the learnings of today, What would be basically your short recap on what you've seen and what you've heard?

Javier Gandara:So thank you. Well, so for me, the key learning is also that the market is even smaller than what is shown there. Because for example, you take Europe to America, and then you can see TUI over there, which I think you can argue that actually TUI is not a point-to-point or a low-cost carrier. It's a charter operator mostly selling packages. They also do seat only, but then it's not that. Or even Azul, you see Azul and Azul Reality. They are taking advantage of the fact that they have a joint ownership with TAP, and then TAP stopped flying between Lisbon and São Paulo and was replaced by Azul. And actually, Azul is doing connecting traffic back in Brazil. So then I think the current situation is even lower than that. So you could argue that to some extent it's really Norwegian, and WOW Air could be another. And I'm just going back to my previous comment in the previous panel around the fact that while we talk about low cost, In reality, what we are really— the innovation here would be around point-to-point long haul, no? And then point-to-point long haul, there are not that many carriers yet.

Laurens Van Den Oever:Correct. Bert, it's quite a special situation, I think, Halifax is in, you know, being closest to Europe, giving the light of how long haul has evolved from your side. What do you see reflected in these numbers, and basically how does that relate to the business that you're currently in?

Bert van der Stege:Yeah, that's right. That's why I'm a little, a little bit more optimistic, probably. I see some good potential in Halifax being the North American closest airport to Europe. We have the geographical advantage of being able to fly across the pond using the 737 MAX, the A321neo. But, but even with, with one of our largest partners, WestJet, we've started something about 4 years ago, Halifax-Glasgow in Scotland, on a 737-700. So I think the economics and the cost advantages of using the narrowbodies Across the pond are real game changers for us, and I see real potential there for future growth.

Laurens Van Den Oever:Okay, Stephen, what's your take on it? The beauty having one runway to basically grow the business with— this does not seem to limit you at this point of embracing the new opportunities, right?

Chris Baldwin:No, no, I mean, although we We just have one runway. We're trying to be as innovative as we can to get as many aircraft on and off that runway as possible every day, all day. I think seeing that data, there are a couple of things that jumped out. Was one, the definition of what's low cost, which I think Javier brought up as well, which I suspect we could debate for hours, who's, who's in which, which segment. But also when you looked at Europe there, There was a mixture between leisure and sort of city, city destinations. And I think the Asian— in the Asian routes, although the destinations weren't marked, again, that there's, there's a mixture between just going to leisure destinations and operating those flights between major cities. I think that's an interesting part of the evolution that will continue to happen.

Laurens Van Den Oever:Right. Chris, maybe it requires a little bit of an additional introduction on your side. Being a technology enabler for the interlining part. Could you just give us a very short update on what your company exactly is doing, as well what you see reflected in the current status quo of long-haul low-cost?

Stephen King:Absolutely. So it's probably worth me starting with— I might wear 2 hats in this panel. I actually spent 11 years at Gatwick Airport building Gatwick Connect, and I joined Dohop last year where we wanted to then continue sort of facilitating the search and book function. So what Dohop does— Dohop provides technology platforms, and we do essentially the, the hard work outside of interline arrangements. We provide airline platforms such as Worldwide by easyJet. We provide airport platforms such as Gatwick Connect. And we also provide alliance platforms. So we launched last week with SkyTeam, so we provide their search functionality. And so for Dohop, this is the— we're always interested to be seeing where— learning more about the demographics, seeing data such as this. And therefore, I think some of this data that we're seeing here, especially, it would be really good to then further understand the breakdowns in terms of reason for travel, especially Stephen just mentioned, you know, into Asia. You know, we're sort of seeing— I think it's about a 3% rise in visiting friends and relatives out to India specifically. So even though there may be some thick routes which are served directly, we're actually seeing that people are making choices to stop or have a connection in there because of cost differences. So, you know, I think by nature of everyone here as well, it's such a hot topic at the moment, and there's so much still to be discovered and to be learned.

Laurens Van Den Oever:I think it brings me as well to the topic I wanted to go to now, more on the data-related part. You guys must see a a lot of insights into basically looking how consumers are basically using your service, as well as from the parts that you see working together with the airlines. How do you, how do you utilize that data? How do you share that with your partners? What is involved in that?

Stephen King:So in terms of the data sharing now, with working with Gatwick Airport, for example, there's an awful lot of valuable information that comes from there. And actually, Gatwick Connect started life as a data collection exercise back in 2013 when the baggage service launched at Gatwick Airport. It was all to really try and understand why people were traveling this way. There was a huge part of data analysis, data collection exercise that was carried out, and it discovered that there was just over a million passengers a year self-connecting through Gatwick. Now, the airlines didn't know who they were, why they were. Gatwick didn't know where they were coming from, going to, which airlines. So that's really how, how this whole product started, was really the data analysis and trying to understand the reason for travel. And as I say, the airline combinations. So the key thing that we learned from that, and that Dohop now carries forward is the sheer passengers were choosing to travel this way because there were no other options. That was their number one goal, was where they wanted to get to, and that was then followed by cost and various other things. So, so for us, it's massively important where we're working on these platforms just to surely create the number of O&D connections. Javier mentioned earlier, the worldwide product has created over 4,000 new O&D connections— new O&Ds, sorry. So that's where we see the true value here for airports and for airlines, is just the sheer number of connecting or brand new O&Ds that you can create with a connecting point.

Laurens Van Den Oever:Right. Stephen, you must have seen a lot of these insights as well. How do you use them in making the decisions ahead in time on your side? How do they support in making the right choices?

Chris Baldwin:Yeah, I think we don't want to do airlines' jobs or try and run sort of route feasibility studies in detail because the airlines know more about their passengers than we ever will and from the data sources that we have. But I think where we can add insight is, is a lot more into this sort of data. Well, we look a lot about where people travel from and how they really— how they choose to get to the airport, and therefore what passengers can— and what the effect of a new route can do on passenger volumes. WestJet— when WestJet came in, the Calgary market from people who live near Gatwick grew by 40%. Well, it's grown by 40% each year. The New York market, as Norwegian launched new, launched new direct flights. That's grown by 14% over the last 4 years just in people who live near Gatwick who are choosing to fly and are able to fly. So I think that's the added insight that we can give airlines confidence that launching a flight will— not only are we working in the existing market, but we're growing the market, or they will grow the market.

Laurens Van Den Oever:Ignacio, we saw quite a lot of different data points That you seem to use as well around the many airports that you serve.

Stephen King:Yes.

Laurens Van Den Oever:How do you look into that? What is still the missing part for you to make, you know, better decisions going ahead? Is there, or from the airline side or from other data contributors, areas specifically to understand whether or not a long-haul route makes sense that, that, that can help out?

Ignacio Biosca:Yeah, okay. Yeah, I mean, the, the sources that you saw before, we tend to— we try to use as much data as possible, but it has to be reliable. And we use Skyscanner, for example. It's a, you know, one of the, of the sources that we, we have added Some time ago now. But, you know, what is really relevant here is to be reliable, to be trusted by the airlines. You saw the 249 million passengers. For that, the airlines have to have had, you know, some operation at our airports. We have had conversations with them. We have proposed We propose routes that afterwards they have worked. So we are earning credibility. That's the crucial part of it. We don't want to propose things that we don't believe in because that would be a complete disaster. We would miss credibility. And so we, we look at the data sources very carefully. What we try to do is to pick Those sources that can add value to the airlines, the ones that they don't have. For example, tourism polls that are carried out in Spain, we use them a lot. But there are other sources that we are investigating and can be useful. And I'm pretty sure that, you know, in some time from now, it will not be a matter of getting the data, but how to play with the data, how to summarize all this huge amount of data that we are going to have. Those who know how to prioritize, how to select the right amount of data, the ones that are going to be efficient. Because at the end of the day, I mean— And you may correct me, Javier. But, you know, for a short-haul route which runs daily, an airline may invest around €15 million roughly. But for a long haul, it can be up to €100 million.

Laurens Van Den Oever:And an airline has to have the confidence that it will be profitable, and we have to help them with our Javier, could you explain or share with us if you're happy with basically then the data inputs or the insights that you're getting from airports in an increased manner, or what is still missing on that side?

Javier Gandara:Well, I think data is very important. We have been discussing around route assessment and all the input that really is really welcome to know, and then especially in our case when we're You're talking about feeding long-haul. It's true, it's a market we don't know anything, so then we welcome the feedback. But then I would like to also just go into a different part of data, which is around improving service and improving the flow of passengers throughout the airports, you know. And that's a really important thing. So we've been trialing some time ago some beacons in Gatwick, under which our passengers with the app, the beacon could know in which part of the airport they were at that moment and then direct them to the baggage belt or to the right check-in. So there are much more that can be done. So if you ask me around things that airports could do better going forward, I think if you look at the airport processes today and you look at how they were 40 years ago, in many airports, not in all of them, they are not significantly different. You still just arrive to an airport, then go to a check-in desk where a person just checks you in, and then you go to security. Yes, it's true, they have changed It has changed in terms of the commercials. You now always go through a duty-free shop, you know, and that has changed, but then you go to a gate. So then my comment also in the other panel that I feel that airports are lagging behind, it also applies to airport processes. So I think there is much more that airports should be doing in terms of automatic bag drop, biometric identification, changes a bit the overall processes to make it easier and smoother for passengers to go through that. And easyJet, included into that is this self-connection. So self-connect, there's a few airports— Gatwick is one good example, Malpensa and others— but there are not that many that are really— and even those airports are still at earlier stages. So for me, the key ask in terms of this self-connection would be around do not wait until the final perfect product would be available. That could be in 5 years' time. Start such as Gatwick did or Milan did, and start just delivering delivering a minimal viable product that then would be able to be improved going forward. Because the, uh, I mean, the way the consumers are flying are dramatically changing. And but then if you look at the processes at the airports, many of them are still not very different to how they were done 40 years ago.

Chris Baldwin:If I could just add to that as well, I think, um, being able to have an airline or airlines that you can work with and actually innovate and test things and trial is, I think, it's really great for both partners. And we do a lot with easyJet, and we created the world's largest self-service bag drop, and that cut queues down from 40 minutes to under 5 minutes. And I think there's lots of things like that that we can continue to do and work with airlines to do it. And we're finding airlines are coming to us and saying, can we get on bag drop? Can we do this? Can we work with the iBeacons? Can we try something new that we haven't done before. So I think if you can get that partnership, that's where we can— we— it's very open, it's very honest, and we'll invest money in getting a really great product for the airlines but also for the passengers.

Laurens Van Den Oever:Bert, what is your view on what's withholding in general airports from embracing new technologies faster? Is it the pressure felt by alliances? Is it the pressure by the main hubs? What is the direction that you would think of that needs to be done to improve that?

Bert van der Stege:Well, in case you haven't figured it out after a full day of being here at a conference, this isn't an industry famous for change. This isn't an industry famous for innovation, and this isn't an industry for doing something fundamentally different. So I think what we have to do is, is work to together very, very closely in embracing some of these realities, looking at these opportunities. Again, I can't overemphasize— being a little biased, of course, seeing the success in Halifax using those narrowbodies. So in our— in our view, we are dealing with a slightly different perspective of long-haul low cost. And then using, using the data that the other panelists here mentioned, the data sources available, to try and estimate that demand. At the end of the day, our biggest challenge is around making a good estimate on the possible effects of market stimulation. That's difficult enough already for, for low-cost travel within, let's say, Europe or the US.

Ignacio Biosca:Yeah.

Bert van der Stege:US or Canada, but even more so for long-haul low cost. How many families can we really get to travel across the pond and visit Europe? How many, many more times are people inclined to visit family, friends, and relatives? That's really difficult to measure before an airline and an airport take a decision.

Laurens Van Den Oever:Mm-hmm. Chris, on your side, if you look at the current technology status and the embracement of that within the airports landscape as well, airlines, what's your feel on that? What really can be improved basically as of today that would help greatly the whole customer experience?

Stephen King:Well, I think the key thing or the key trigger for Gatwick, for example, specifically was when Gatwick was sold from under BAA, which then created that competition between the airports. So I think competition between airports is, is massive, and it is hugely important, and because you're competing for new airlines, you're competing for passengers, and, and that, that can only and has only been facilitated by introduction of technology. So you saw the, the overhaul of security, the introduction of all e-gates at immigration, automatic bag drops, and the amount of technology going on into airspace as well. So I think, I think the— that it's essential. You're seeing across the world now that the— for the example of airports competing, the service is going up and the costs are starting to come down. And I think I think that really does play and lay a good basis for the low-cost long-haul that we're talking about. The fact that there is a new, new ground for airlines to come in and do something differently. Yes, it's— I do feel it's airport-led, but I think it needs that partnership between an airport and an airline to create that change. Especially in the world of what we're doing with— and people in the room earlier were talking about it— it needs to be a partnership. And as Stephen mentioned, there's lots of things that happen between Gatwick and easyJet and various other partners at Gatwick. But it needs to be a joint effort. Otherwise, things just take a long, long time. And actually, the success that has been seen in quite a small sample size of people who are doing something new, I think the success is very, very good. So, so I do think it's something that should absolutely continue and not just being a landlord-tenant agreement between airports and airlines. Absolutely, the partnership approach seems to be bearing fruit from what I can see.

Laurens Van Den Oever:Stephen, how would you describe the difference between the relationship airport, low-cost carrier versus airport, full-service carrier? Is there any noticeable difference on that?

Chris Baldwin:Well, I think full-service carriers are becoming as equally sensitive, or are as equally sensitive to cost as, as low-cost carriers as well. And I think it's about making sure that we've got an efficient infrastructure for, for those carriers to work with. So it's not just about the shiny stuff that makes the passenger experience work well. It's also about how we get those aircraft from the runway to the, to the gates. We get the passengers on and off and back out to the runway. And our chief, chief operating officer goes around, for want of a better, better word, saying that it's not about reducing necessarily the cost of the Gatwick charges because we're already one of the cheapest airports in Europe, but it's making it cheaper for airlines to operate at Gatwick. So can we look at all the equipment that we have? Are we— are airlines finding that every airline is buying exactly the same equipment and using it inefficiently? So can the airport do something to be more efficient in that environment? Can, can we look at how we can improve our taxis so that we can get in and out, in and out quicker? I mean, we, on the cost side and the airport charges side, Gatwick doesn't charge takeoff or landing fees in the winter. We know that especially for low-cost carriers, it's more difficult to be profitable in the winter. We want more flights in the winter, so we don't charge takeoff or landing. So that means that it just makes it a little bit easier for those airlines to come in, and that can be the same whether they're full-service or LCC.

Laurens Van Den Oever:We're going to the cost side a little bit deeper after this topic. Bert, I was, I was planning to ask you that same question. What difference do you see working with the low-cost carriers versus full service?

Bert van der Stege:I agree with Stephen. I don't think there's much, much of a difference. At the end of the day, it comes down to the question that's been asked several times this morning: what does the customer want? For us as an airport, we have 2 customers, the passenger as well as the airline. But in both cases, the real question, of course, is What does the customer want to pay for? And we treat a full-service carrier just exactly the same as, as we do a low-cost carrier or an ultra-low-cost carrier.

Laurens Van Den Oever:Javier, on the cost side, you know, on the one hand the charges and on the other side the incentives, what, what in general would you What would you like to see improved in the relationship with airports regarding those 2 topics?

Javier Gandara:Well, I think this morning was said, for example, that the— I think the 3rd biggest cost for an airline was ownership. Well, it could be for a long-haul airline, but not for a low-cost short-haul. In our case, airport charges is our 2nd biggest cost component right after fuel. Even the 3rd is crew. The 4th is navigation only defeats its ownership cost. So that's why airport charges for us is critical. That's why we spend a huge amount of time, a huge amount of effort just discussing with airports. Having said that, for the long haul, I believe they are not so critical because it's a smaller part of the total, the total cost. But I guess in the airport-airline relationship, one key element, and Chris just mentioned, is also competition. So Gatwick is facing competition from all the other London airports, and then we truly believe that competition stifles innovation and efficiency, you know. And then we saw that. So while you see many airlines going bust— we mentioned 301 in the last few years— you don't see that many airports going, going bust. So it's a different dynamic, you know. And then, as I mentioned before, I think competition is good. And then in the pre-liberalization era, then it was completely different, you know. And I always joke saying that, well, The big— the main reason why airlines historically have never been profitable is because they have historically been run by aeronautical engineers. And then I just— not being challenged— say, hey, by the way, but you're an aeronautical engineer yourself. And say, what can I say? Nobody's perfect. No, I mean, outside of the joke, it is true that in the past there was a completely production focus, and then the important thing was the aircraft itself, without understanding— I'm talking about pre-liberalization— that the aircraft is just a means to an end. So then the liberalization and competitions changed that completely, and then is when everyone realized that the consumer is the key, and that's why we need to do whatever is needed to really adapt to those needs. So in that journey, I think we go, let's say, some miles, you know what I mean, in front of some of the airports, and that's why what we would be asking is really to feel that competition and to feel that need for innovation and for efficiency, because at the end of the day, we are together just adapting to the evolving needs of our customers.

Laurens Van Den Oever:Right. Ignacio, hearing that, you feel Aena is, is, is up to it, is, is ready to serve that? And moreover, looking to a more particularly Spanish situation, would you consider yourself as being basically a feeding hub for the rest of the world, looking at the charts you just showed to us.

Ignacio Biosca:Yeah, yeah, yeah. Well, I have to say first of all that I am also an aeronautical engineer, so I'm not perfect at all, like Javier said. Yeah, I mean, I think that, you know, things within the airport— I have to agree with Javier— The client, the customer has to be in the center. And looking at how airports compete, that is a fact today because we have seen it this morning. You can just call Alasia and see if you are going to Berlin, to Rome, or to Barcelona. So we are, you know, the combination of the product that I mentioned before, destination plus the airport, has to be be efficient and have to work together. On that regard, I think that globally in the world, AENA is placed in a very good situation to try to enhance the connections between, for example, Latin America and Asia, because that is the shortest way for some of the long-haul airlines to connect markets as important as the Brazilian market and the Chinese market, for example. So I would say that we are very well placed to do so, and we're willing to try to explore how to better do things like that.

Laurens Van Den Oever:Okay, guys, really, we still have 30 seconds left. That means that the time flies. Is there anybody who has a very burning question before we basically round off and go to the next, well, program elements. Anybody has a, you know, something that is really urgent for any one of the panelists here? Well, then I think that, then that's the best summary that we can get, that everybody's completely, you know, brought up to speed. May I really thank you for all your inputs. Thanks. Give the panel a big applause.

Stephen King:Thank you.

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